Oct 18, 2008

Sport - F1;Amid global crunch Formula One banks on Asia

Brad Spurgeon

SHANGHAI: When the global financial storm hit last month, Formula One was staging its most glitzy and ambitious Grand Prix to date, a first-ever night race under the lights in the streets of Singapore.

It was the first of three races this year on the Asian leg of Formula One's world tour, but critics, pointing to the irony of the timing, said the sport's perceived financial excess would soon be an anachronism in a time of tightening purse strings for businesses and consumers throughout the world.

Many team directors, sponsors and others involved in the sport disagree, saying that the race in Singapore's financial hub on Sept. 28 was just what the sport needed to ensure its future in a troubled world economic climate. They noted that Formula One's ongoing expansion in Asia - it will add a race in India in 2011 and is considering one in South Korea - was designed not only to have greater exposure in the region as a global sport, but also to profit financially from Asian economic growth.

The race in Singapore and the Japanese Grand Prix on Oct. 12 were resounding successes. Yet as it prepares for the Chinese Grand Prix in Shanghai this weekend, the series faces vast challenges, particularly in China.

Although this is Formula One's fifth annual Grand Prix race in Shanghai, the sport is a long way from piercing the market and raising the level of the local motor-racing culture to ensure success.

Before hosting its first Formula One race in 2004, China had no indigenous motor racing to speak of. Its only international events were a leg of the World Rally Championship in the 1990s. Although interest has been building steadily, it came to a standstill this year during motor racing's usual peak summer months as the Olympics dominated sports in China. Motor-racing events in China were temporarily called off throughout the summer and the Formula One races that were supposed to be broadcast live were televised later.

The contract with the government-owned Shanghai International Circuit to host the Grand Prix runs until 2010. But the circuit is not making money through sales of tickets, which cost the equivalent of more than half of the average monthly salary in the Shanghai area.

The MotoGP motorcycle race has been dropped from the Shanghai circuit, four years into a seven-year deal. Some wonder whether the same will happen to Formula One, particularly amid the global economic downturn.

Yet for most Formula One sponsors and the car manufacturers that own half of the teams, China is a priority, as is Asia in general. The manufacturers build and sell cars in China, the largest potential market in the world, where car sales are up 11 percent so far this year.

Mercedes sold 30,600 cars in China last year, according to the McLaren Mercedes team. That was an increase of 44.9 percent on the previous year, and from January to September this year, sales increased by 53.6 percent over the same period in 2007.

"China becomes more important year by year because it is a huge country - 1.4 billion people - it's just developing, just discovering things like Formula One," said Mario Theissen, the director of the BMW Sauber Formula One team and of BMW's motor sports program. "I think as the public becomes aware of it and gets hooked, Chinese companies will be interested in Formula One as well. So I see a big economic potential as well."

"But it's not a one- or two-year game," he added. "It's what we see as a car manufacturer as well: You have to invest in China first, then it will take five to 10 years until you really earn what you have put in before."

Yet for Michael Li, a Chinese motor racing journalist at Sina.com, China's largest Internet portal, the manufacturers are not doing enough to encourage the sport's development in China.

He said that in addition to appearing at the Chinese Grand Prix and promoting it the week before, they should be setting up and investing in local racing series and sponsoring events in the country throughout the year.

"It's not a question of what China has to offer now," Li said. "It's a question of maybe the manufacturers will have to do something first to teach the Chinese people, to raise the awareness of motor sport. And they need to teach us why we should get involved and what fun we would get out of it, to bring in more fans."

Theissen said that BMW Sauber's partner, the Malaysian oil company Petronas, runs two BMW Z4 cars in a Japanese touring-car series and that it intends to go to China as well. Bernie Ecclestone, the Formula One promoter, this year added an Asian leg to the GP2 series, which races in China as a support race to the Grand Prix this weekend.

Christopher Lencheski, president and chief executive of SKI & Company, a sports and entertainment marketing and communications firm that is involved in Formula One sponsorship, suggested that Asia offers vast opportunities that Formula One has yet to exploit. He said that the series would likely begin to use local sponsorships in a race-specific manner.

"Hypothetically, Tiger Beer could be the official sponsor of the Honda Racing F1 team, localized," he said. "The content is driven through here, presented by Tiger Beer, in say, Singapore or pan-Asian states, but not on the car."

He also said that the advent of night races in Asia, as in Singapore, brings the sport to television's prime time in the region, which is likely to increase viewership.

But the health of the Asian financial markets and the sport's approach to the region remains a key to its own future health. So far, there are few local sponsors from Asia because the sport is not popular enough here.

"The basic fundamental issue is that we don't have a driver in Formula One, we don't have a team, we don't have anyone involved," said Li, referring to the situation in China. "Aigo is a partner with McLaren, and you can see a few Chinese characters on a Formula One car these days, but that's all."

But the problem goes beyond that and into the very nature of the business and sports culture in China.

"China got 51 gold medals in the Olympics and most sports are supported by the state," Li noted. "And you can't really see a lot of private companies sponsoring the athletes. They're not ready to do that yet."

But according to Feng Jun, president of Aigo, a consumer technology company that was also involved in Olympics sponsorship, interest is growing in China, both among the public and among companies. Formula One's international reach and its image is exactly what China needs, he said.

"Chinese brands are mainly low-end, but at Aigo we do R and D, we have many new technologies and the quality control is very strict," Feng said. "So we want to be a high-end brand, and Formula One is the best platform for high-end brands."

Feng also said that the global financial crisis could help his and other Chinese companies achieve another objective through Formula One.

"Before, people had enough money so they don't care about the price," he said. "But now with the crisis, not everyone is so rich, so now more and more people will care about which brand will have a high-quality, high-end and a reasonable price."

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